China's Fading Free-Trade Fervor

June 04, 2002

By Mark L. Clifford China had a 15-year Long March to join the World Trade Organization, but its entry wasn't the end of the road -- it was just the end of the beginning. Since joining the trade body in December, Beijing has embarked on what increasingly seems to be the second leg of the March. And it looks like it's going to be every bit as grueling as the first one.

I've been reading diplomatic tea leaves recently, and the omens for smooth implementation don't look good. For all the progress that China has made in reforming its economy in the past 15 years, actually living up to the WTO deal is proving very difficult indeed. That spells trouble with China's trading partners -- and, above all, with Washington.

OUT OF STEAM. Problem No. 1: Finding the muscle on the Chinese side to get WTO promises translated into action. The Ministry of Foreign Trade & Economic Cooperation was the lead group in WTO negotiations. Problem is, MOFTEC exhausted its political capital simply pushing the deal through the Chinese bureaucracy. Now that the real work of translating the agreement into action needs to be done, MOFTEC can't count on goodwill from other ministries. Instead, the latter's protectionists are slowing things down.

That's especially true in agriculture, where the U.S. and China have clashed on issues ranging from American soybean imports to Beijing's proposed health regulations limiting genetically modified food inflows. Worse yet, no established mechanism exists to deal with disputes. The U.S. and other foreign partners can take China to the supreme court of world trade at WTO headquarters in Geneva. But that's a cumbersome and time-consuming process at best. And Geneva's adjudicators are already overloaded.

The U.S. President can also pressure his Chinese counterpart Jiang Zemin to change policy -- as George Bush did during his February state visit to China, on the vexing issue of soybean imports. But the two sides need to settle on a better modus operandi that would allow lower-level officials to handle most disputes. After all, Bush and Jiang should be dealing with more important state affairs than soybean sales.

UNDER THE MICROSCOPE. Crunch time is coming soon. In October, China will have to have to endure the first of eight annual WTO reviews of its rule implementation. More than a dozen committees on everything from financial services to food-safety standards for agriculture will examine in microscopic detail the fulfillment of China's promises.

Trading partners will have plenty of gripes. The big problems are in agriculture, where difficulties remain with opening up to imports of sensitive crops like rice, wheat, and cotton. China's failure to join the Information Technology Agreement, a sweeping high-tech trade-liberalization scheme, also rankles other countries. China was supposed to sign up when it joined the WTO. So far, it still hasn't.

Meanwhile, the Chinese are already stonewalling Washington and other trade partners ahead of the key October meetings. General WTO practice calls for the two sides to start preparing for the meetings 90 days ahead of time. China has been indicating that it doesn't want to take part. Shouted discussions have been reverberating in normally low-key WTO meetings in Geneva, Washington, and Beijing.

DISTURBING TREND. The Chinese have even begun invoking that old bogey -- how they should be cut a break because their country had to endure 150 years of imperialism. One of the best things about today's more self-confident China is that Beijing's mandarins have pretty much jettisoned the old anti-colonial, anti-imperialist rhetoric. It's disturbing that it's making a comeback.

Part of the problem is that China has no equivalent of the U.S. Trade Representative. The powerful USTR, who carries the rank of ambassador, wields clout both within Washington's bureaucracy and abroad. China considered adopting a similar system, setting up a USTR-style body within the powerful State Council, or Cabinet. Unfortunately, it didn't happen.

Still, the U.S. can do a lot more to help. Before China joined the WTO, Washington promised that it would provide technical assistance. But it left a loophole: The help depends on Congress providing funds, and lawmakers haven't agreed to play ball so far.

DELICATE TRANSFER. Sanctions put in place after the 1989 killings of pro-democracy protestors are also a stumbling block for some kinds of assistance. However, business hasn't lobbied Congress to pony up the money -- and hasn't come up with much on its own. As a matter of self-interest, U.S. business groups should do more. The European Union is spending heavily on technical assistance, and a lot of the money is going toward setting up standards. Countries (and companies) that help write standards tend to make sure that the rules are written to their advantage.

China's leadership is preoccupied with a delicate transfer of power. Over the next nine months, senior leaders, including President and Communist Party head Jiang Zemin and Premier Zhu Rongji, are expected to give up their top positions. A lot of horse-trading is going on right now as different politicians and their supporters maneuver for position. Keeping WTO promises isn't at the top of anyone's to-do list.

Washington, of course, is distracted by the ongoing battle against terrorism. But the commercial relationship between the two countries is too big, and too much is at stake for the two sides to ignore these growing problems indefinitely. U.S. exports to China peaked at a record $19.2 billion last year, but imports from China, by Washington's calculations, also hit a high: $102.3 billion. At $83 billion for two years in a row, this is the biggest trade deficit the U.S. runs. (To put that in perspective, America's trade deficit with Japan was $68 billion last year.)

The way things are shaping up, it's going to be a bitter cup of tea that China and its trading partners are brewing. It's too early to predict a crisis, but the Chinese look set to prove the skeptics -- those who worried that they wouldn't be able to keep their promises -- all too right. Unfortunately, that's going to attract some unwanted attention in Washington and other capitals around the world. Hong Kong-based Asia Regional Manager Clifford is the co-author, most recently, of China and the WTO: Changing China, Changing World Trade (John Wiley & Sons, 2002)